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Basic elements of a good plan

John Sande IV

I’m at the age where a lot of my friends are starting to have children. Quite often, shortly after the announcement of a pregnancy, I get a call from my friend asking if I can discuss their estate plan (or lack of) with them. I suppose children will make you contemplate important things that may not seem so important before their arrival.

Typically when new clients come into my office they know that an estate plan is a method of transferring property when they die, but there is some confusion about what documents are necessary to create an estate plan. In estates there isn’t a one-size-fits-all approach, but typically an estate planning practitioner can accomplish the goals of the client with a trust, trust certificate, pour-over will, and powers of attorney. I will briefly discuss each of these documents and their function in the estate plan, but for more information you should contact your attorney.

The Trust Agreement

The trust agreement (or trust) is the mother ship of the estate plan. This document accomplishes several functions, but most important is the actual distribution of your estate to your beneficiaries. Your beneficiaries can be almost anyone or anything such as members of your family, colleges and universities or other charities, and sometimes even your pets. The trust sets forth how and when your estate is to be distributed to your beneficiaries.

The person charged with administering your estate is referred to as your trustee. The trustee can be one person, several people, or a professional such as a bank. Choosing your trustee is no small matter. I always caution my clients to think carefully before deciding a trustee and to make sure that the person they choose is willing and capable of the task.

One of the biggest advantages of a trust is the ability to avoid probate. Probate is the process in which a court oversees the administration of an estate. Although this procedure will ultimately result in the distribution of your estate, it is costly and time consuming. By transferring your property to your trust, rather than holding the property in your own name, there isn’t any property that would need to be transferred when you die, and thus no need to request the court’s assistance in transferring property. In some respects, creating and maintaining an estate plan is like maintaining your car. The relatively small amount of time and expense put into your estate plan will save much more in the long run and is frequently worth the extra effort.

The trust certificate

The trust certificate is nothing more than the document that provides evidence that your trust exists. This might not seem like an important document, but it is because your trust contains private family information that isn’t intended for public disclosure. However, people relying on the existence of the trust can’t just take your word for it. They need a legal document that they can rely on to prove the trust exists without disclosing your personal family information. The trust certificate serves this purpose.

The pour-over will

The pour-over will is a document that you hope you will never use. As discussed, one purpose of the trust is to avoid probate. However, in order to accomplish this goal, it is imperative that all of your property is held by the trust, and not held individually by you. This goal is sometimes difficult to achieve because we are so accustomed to purchasing items and holding them in our own names. For example, the motorcycle you bought on an impulse. When you have an estate plan, it is important to remember your trust should be the record owner reflected in the title of the motorcycle. If you don’t, it may be necessary to probate the property that is not held by your trust. This is where the pour-over will comes into play. The pour-over will is a will like any other, but rather than name individual beneficiaries, the beneficiary of your pour-over will is the trust.

The powers of attorney

A power of attorney is a written authorization to represent or act on another’s behalf in private affairs, business, or other legal matters. Typically an estate-planning attorney will prepare two different powers of attorney. The first is what I refer to as the medical power of attorney. This document is actually codified in statute and is often referred to as your advance directive. Essentially, this document allows you to provide an individual the authority to make medical conditions in the event you are unable to make those decisions yourself. These health care decisions are very personal and not everybody wants the same type or amount of care. The medical power of attorney gives you the piece of mind that your medical care will occur as you desire even in the event you are incapable of discussing your care with your doctor.

The other type of power of attorney is what I call the financial power of attorney. This document allows the agent to act on behalf of the principal in regard to various financial decisions. For example, the agent will have the ability to access the bank accounts and sell or dispose of the principal’s property. The importance of this document is often lost on many people. A very difficult part of my job is going to a nursing home with a financial power of attorney in an attempt to have a client sign the document when they have the mental capacity to legally execute it. In some cases the client lacks the mental clarity to execute the document and the family is placed in a precarious position. Many times, the client has the financial ability to provide for their care, but without the ability to access these finances, the family has to come out of pocket. This can place an undue financial burden on the family, and is easily avoidable.

Together these documents can provide assurance and piece of mind that your financial affairs are secure moving forward and that your family has the knowledge and ability to care for you in the event of a tragic accident. It is never too early to consider your estate plan and not always advisable to wait until the birth of your first child.

John Sande IV is an associate with Fennemore Craig Jones Vargas in Reno. Contact him at 775-786-5000 or through http://www.fclaw.com.